Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K 
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): December 4, 2018
Conn's, Inc.
(Exact name of registrant as specified in its charter)

Delaware
001-34956
06-1672840
(State or other jurisdiction of
incorporation)
(Commission File Number)
(IRS Employer Identification No.)

2445 Technology Forest Blvd., Suite 800
The Woodlands, Texas
77381
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code:  (936) 230-5899
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o






Item 2.02. Results of Operations and Financial Condition.
On December 4, 2018, Conn's, Inc. (the "Company") issued a press release reporting its third quarter fiscal year 2019 financial results. A copy of the press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.
None of the information contained in Item 2.02 or Exhibit 99.1 of this Form 8-K shall be deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and none of it shall be incorporated by reference in any filing under the Securities Act of 1933, as amended. Furthermore, this report will not be deemed an admission as to the materiality of any information in the report that is required to be disclosed solely by Regulation FD.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No.        Description                                        
99.1*

* Furnished herewith





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
CONN'S, INC.
Date:
December 4, 2018
By:
/s/ Lee A. Wright
 
 
Name:
Lee A. Wright
 
 
Title:
Executive Vice President and Chief Financial Officer



Exhibit


Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12579269&doc=3
Conn's, Inc. Reports Third Quarter Fiscal 2019 Financial Results
November Same Store Sales up 8.5% in Non-Harvey Markets, Demonstrating Strong Start to Fourth Quarter
Third Quarter GAAP Earnings per Diluted Share of $0.45, compared to $0.05 during Prior Year Period
Record Third Quarter Retail Gross Margin of 41.2%
Third Quarter Credit Spread of 940 basis points

THE WOODLANDS, Texas, December 4, 2018 - Conn's, Inc. (NASDAQ: CONN) ("Conn's" or the "Company"), a specialty retailer of furniture and mattresses, home appliances, consumer electronics and home office products, and provider of consumer credit, today announced its financial results for the quarter ended October 31, 2018.
“Fiscal year 2019 is shaping up to be one of the best years of profitability in Conn’s 128-year history. This is primarily due to our growing credit spread and strong retail gross and operating margins. Conn’s credit spread was 940 basis points in the third quarter of fiscal year 2019 as a result of record interest income and fee yield and lower charge-offs of bad debts. From a retail perspective, even with Hurricane Harvey’s impact on same store sales, we achieved a retail operating margin of 12.4% during the third quarter of fiscal year 2019,” stated Norm Miller, Conn’s Chairman and Chief Executive Officer.
“Our successful credit transformation combined with the investments underway to maximize our retail performance have created the strongest foundation since I came to the company over three years ago. We are well positioned headed into the fourth quarter as November same store sales increased 8.5% in our non-Harvey markets.  Total same store sales increased 3.6% in November, even as we lapped strong sales in the prior year in our Hurricane Harvey impacted markets.”
“As we plan for our next fiscal year, we expect stronger retail growth driven by improving same store sales trends, coupled with opening 12 to 15 new Conn’s HomePlus locations.  I am pleased with the progress we are making, and the positive momentum our highly profitable and differentiated business is achieving,” concluded Mr. Miller.
Third quarter of fiscal year 2019 highlights include:
Opened three new Conn’s HomePlus locations in Virginia
Record third quarter retail gross margin of 41.2%
Retail operating margin of 12.4%, 230 basis points higher than the third quarter of last fiscal year
Credit spread of 940 basis points, the best third quarter credit spread in five years
Record quarterly credit segment revenues of $89.8 million
60+ day delinquency rate of 9.7%, representing the fifth consecutive quarter that the rate has declined year-over-year
Third consecutive quarter of positive credit segment operating income, which has generated a $24.5 million improvement fiscal year-to-date compared to the prior fiscal year period
Interest expense of $15.1 million, compared to $18.1 million for the same period last fiscal year
GAAP earnings of $0.45 per diluted share, compared to $0.05 per diluted share for the same period last fiscal year
Adjusted earnings of $0.59 per diluted share, an increase of 228% over the prior year period





1



Third Quarter Results
Net income for the three months ended October 31, 2018 was $14.6 million, or $0.45 per diluted share, compared to net income for the three months ended October 31, 2017 of $1.6 million, or $0.05 per diluted share. On a non-GAAP basis, adjusted net income for the three months ended October 31, 2018 was $18.9 million, or $0.59 per diluted share, which excludes severance costs related to a change in the executive management team and costs related to a legal judgment from a 2014 sale of charged-off accounts (refer to Note 6, Contingencies, in our Quarterly Report on Form 10-Q for the three months ended October 31, 2018). This compares to adjusted net income for the three months ended October 31, 2017 of $5.6 million, or $0.18 per diluted share, which excludes a loss from the write-off of previously capitalized costs for a software project that was abandoned during the third quarter of fiscal year 2018 related to the implementation of a new point of sale system that began in fiscal year 2013 and a loss from extinguishment of debt related to the early redemption of our 2016-A Notes.
Retail Segment Third Quarter Results
Retail revenues were $284.1 million for the three months ended October 31, 2018 compared to $291.9 million for the three months ended October 31, 2017, a decrease of $7.9 million or 2.7%. The decrease in retail revenue was primarily driven by a decrease in same store sales of 4.4%, partially offset by new store growth. The decrease in same store sales was due to a decrease in same store sales for markets impacted by Hurricane Harvey of 11.8% and a decrease in same store sales for non-Hurricane Harvey markets of 1.3%. We believe that the decrease in same store sales in markets impacted by Hurricane Harvey was primarily a result of the impact of rebuilding efforts during the three months ended October 31, 2017. For the three months ended October 31, 2018 and 2017, retail segment operating income was $35.3 million and $29.6 million, respectively. On a non-GAAP basis, adjusted retail segment operating income for the three months ended October 31, 2018 was $36.0 million, after excluding severance costs related to a change in the executive management team. On a non-GAAP basis, adjusted retail segment operating income for the three months ended October 31, 2017 was $35.4 million, after excluding a loss from the write-off of previously capitalized costs for a software project that was abandoned during the third quarter of fiscal year 2018 related to the implementation of a new point of sale system that began in fiscal year 2013.
The following table presents net sales and changes in net sales by category:
 
Three Months Ended October 31,
 
 
 
%
 
Same Store
(dollars in thousands)
2018
 
% of Total
 
2017
 
% of Total
 
Change
 
Change
 
% Change
Furniture and mattress (1)
$
91,342

 
32.2
%
 
$
97,146

 
33.3
%
 
$
(5,804
)
 
(6.0
)%
 
(6.6
)%
Home appliance
79,542

 
28.0

 
83,837

 
28.7

 
(4,295
)
 
(5.1
)
 
(6.4
)
Consumer electronics (1)
60,008

 
21.1

 
58,062

 
19.9

 
1,946

 
3.4

 
(0.2
)
Home office (1) 
22,661

 
8.0

 
20,295

 
7.0

 
2,366

 
11.7

 
9.9

Other
3,178

 
1.1

 
4,446

 
1.5

 
(1,268
)
 
(28.5
)
 
(26.6
)
Product sales
256,731

 
90.4

 
263,786

 
90.4

 
(7,055
)
 
(2.7
)
 
(4.2
)
Repair service agreement commissions (2)
23,579

 
8.3

 
24,488

 
8.4

 
(909
)
 
(3.7
)
 
(6.3
)
Service revenues
3,564

 
1.3

 
3,534

 
1.2

 
30

 
0.8

 


Total net sales
$
283,874

 
100
%
 
$
291,808

 
100
%
 
$
(7,934
)
 
(2.7
)%
 
(4.4
)%
(1)
During the three months ended October 31, 2017, we reclassified certain products from the consumer electronics and home office product categories into the furniture and mattress product category. Net sales of these products reflected in the consumer electronics and home office product categories for the three months ended October 31, 2017 were $2.7 million and $0.8 million, respectively. The change in same store sales reflects the current product classification for both periods presented.
(2)
The total change in sales of repair service agreement commissions includes retrospective commissions, which are not reflected in the change in same store sales.
The following provides a summary of the same store sales performance of our product categories during the three months ended October 31, 2018 as compared to the three months ended October 31, 2017:
Furniture unit volume decreased 8.9%, partially offset by a 2.8% increase in average selling price;
Mattress unit volume decreased 16.6%, partially offset by a 11.3% increase in average selling price;
Home appliance unit volume decreased 14.0%, partially offset by a 8.8% increase in average selling price;
Consumer electronic unit volume decreased 7.4%, partially offset by a 7.8% increase in average selling price; and

2



Home office unit volume increased 24.5%, partially offset by a 11.7% decrease in average selling price.
Enhancements to the product assortment and improved product sales mix for higher-priced items have driven an increase to average sales prices in most product categories.

Credit Segment Third Quarter Results
Credit revenues were $89.8 million for the three months ended October 31, 2018 compared to $81.3 million for the three months ended October 31, 2017, an increase of $8.5 million or 10.5%. The increase in credit revenue was driven by the origination of our higher-yielding direct loan product, which resulted in an increase in the portfolio yield rate to 21.7% from 19.8% for the comparative periods, and by a 2.2% increase in the average balance of the customer receivable portfolio. The total customer portfolio balance was $1.53 billion at October 31, 2018 compared to $1.49 billion at October 31, 2017, an increase of 2.7%.
The provision for bad debts decreased to $47.3 million for the three months ended October 31, 2018 from $56.3 million for the three months ended October 31, 2017, a decrease of $9.0 million. The decrease was driven by a year-over-year reduction in net charge-offs of $9.7 million.
Credit segment operating income was $0.2 million for the three months ended October 31, 2018, compared to an operating loss of $8.7 million for the three months ended October 31, 2017. On a non-GAAP basis, adjusted credit segment operating income for the three months ended October 31, 2018 was $5.0 million, after excluding costs related to a legal judgment from a 2014 sale of charged-off accounts (refer to Note 6, Contingencies, in our Form 10-Q for the three months ended October 31, 2018). On a non-GAAP basis, adjusted credit segment operating loss for the three months ended October 31, 2017 was $8.7 million.
Additional information on the credit portfolio and its performance may be found in the Customer Receivable Portfolio Statistics table included within this press release and in the Company's Form 10-Q for the quarter ended October 31, 2018, to be filed with the Securities and Exchange Commission on December 4, 2018.
Store Update
The Company opened three new Conn's HomePlus® stores during the third quarter of fiscal year 2019. In November, the Company opened one additional store bringing the total store count to 122. During fiscal year 2019, the Company plans to open a total of seven new stores in existing states to leverage current infrastructure.
Liquidity and Capital Resources
As of October 31, 2018, the Company had $401.6 million of immediately available borrowing capacity under its $650.0 million revolving credit facility, with an additional $162.8 million that may become available under the Company's revolving credit facility if the Company grows the balance of eligible customer receivables and total eligible inventory balances under the borrowing base. The Company also had $3.5 million of unrestricted cash available for use.
Outlook and Guidance
The following are the Company's expectations for the business for the fourth quarter of fiscal year 2019:
Change in same store sales between 0% and positive 2%:
Markets not impacted by Hurricane Harvey between positive 4% and positive 6%; and
Markets impacted by Hurricane Harvey between negative 9% and negative 7%;
Retail gross margin between 40.0% and 40.5% of total retail net sales;
Selling, general and administrative expenses between 28.5% and 30.5% of total revenues;
Provision for bad debts between $54.0 million and $58.0 million;
Finance charges and other revenues between $93.0 million and $97.0 million; and
Interest expense between $15.5 million and $16.5 million.
Conference Call Information
The Company will host a conference call on December 4, 2018 at 10 a.m. CT / 11 a.m. ET to discuss its three months ended October 31, 2018 financial results. Participants can join the call by dialing 877-451-6152 or 201-389-0879. The conference call will also be broadcast simultaneously via webcast on a listen-only basis. A link to the earnings release, webcast and the third quarter fiscal year 2019 conference call presentation will be available at ir.conns.com.
Replay of the telephonic call can be accessed through December 11, 2018 by dialing 844-512-2921 or 412-317-6671 and Conference ID: 13685240.

3



About Conn's, Inc.
Conn's HomePlus is a specialty retailer currently operating 122 retail locations in Alabama, Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. The Company's primary product categories include:
Furniture and mattress, including furniture and related accessories for the living room, dining room and bedroom, as well as both traditional and specialty mattresses;
Home appliance, including refrigerators, freezers, washers, dryers, dishwashers and ranges;
Consumer electronics, including LED, OLED, QLED, 4K Ultra HD, and smart televisions, Blu-ray players, home theaters, portable audio equipment, and gaming products; and
Home office, including computers, printers and accessories.
Additionally, Conn's HomePlus offers a variety of products on a seasonal basis. Unlike many of its competitors, Conn's HomePlus provides flexible in-house credit options for its customers in addition to third-party financing programs and third-party lease-to-own payment plans.
This press release contains forward-looking statements within the meaning of the federal securities laws, including but not limited to, the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Such forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives. Statements containing the words anticipate, believe, could, estimate, expect, intend, may, plan, project, should, predict, will, potential, or the negative of such terms or other similar expressions are generally forward-looking in nature and not historical facts. Such forward-looking statements are based on our current expectations. We can give no assurance that such statements will prove to be correct, and actual results may differ materially. A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by our forward-looking statements including, but not limited to: general economic conditions impacting our customers or potential customers; our ability to execute periodic securitizations of future originated customer loans on favorable terms; our ability to continue existing customer financing programs or to offer new customer financing programs; changes in the delinquency status of our credit portfolio; unfavorable developments in ongoing litigation; increased regulatory oversight; higher than anticipated net charge-offs in the credit portfolio; the success of our planned opening of new stores; technological and market developments and sales trends for our major product offerings; our ability to manage effectively the selection of our major product offerings; our ability to protect against cyber-attacks or data security breaches and to protect the integrity and security of individually identifiable data of our customers and employees; our ability to fund our operations, capital expenditures, debt repayment and expansion from cash flows from operations, borrowings from our revolving credit facility, and proceeds from accessing debt or equity markets; and other risks detailed in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended January 31, 2018, Part II, Item 1A, Risk Factors, in our Quarterly Report on Form 10-Q for the three months ended July 31, 2018 and other reports filed with the SEC. If one or more of these or other risks or uncertainties materialize (or the consequences of such a development changes), or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those reflected in our forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise, or to provide periodic updates or guidance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.
CONN-G
S.M. Berger & Company
Andrew Berger (216) 464-6400

4



CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share amounts)
 
Three Months Ended October 31,
 
Nine Months Ended 
 October 31,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Total net sales
$
283,874

 
$
291,808

 
$
855,943

 
$
857,506

Finance charges and other revenues
89,950

 
81,364

 
260,888

 
238,139

Total revenues
373,824

 
373,172

 
1,116,831

 
1,095,645

Costs and expenses:
 
 
 
 
 
 
 
Cost of goods sold
166,886

 
175,591

 
507,102

 
519,847

Selling, general and administrative expense
118,380

 
114,355

 
353,948

 
332,524

Provision for bad debts
47,548

 
56,512

 
142,455

 
161,891

Charges and credits
5,537

 
5,861

 
5,837

 
11,156

Total costs and expenses
338,351

 
352,319

 
1,009,342

 
1,025,418

Operating income
35,473

 
20,853

 
107,489

 
70,227

Interest expense
15,098

 
18,095

 
47,484

 
62,142

Loss on extinguishment of debt

 
461

 
1,773

 
2,907

Income before income taxes
20,375

 
2,297

 
58,232

 
5,178

Provision for income taxes
5,745

 
728

 
13,859

 
1,916

Net income
$
14,630

 
$
1,569

 
$
44,373

 
$
3,262

Income per share:
 
 
 
 
 
 
 
Basic
$
0.46

 
$
0.05

 
$
1.40

 
$
0.10

Diluted
$
0.45

 
$
0.05

 
$
1.38

 
$
0.10

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
31,712,862

 
31,292,913

 
31,636,270

 
31,121,177

Diluted
32,321,874

 
31,764,594

 
32,251,952

 
31,457,420



5



CONN'S, INC. AND SUBSIDIARIES
CONDENSED RETAIL SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)
 
Three Months Ended October 31,
 
Nine Months Ended 
 October 31,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Product sales
$
256,731

 
$
263,786

 
$
773,224

 
$
774,741

Repair service agreement commissions
23,579

 
24,488

 
72,104

 
72,703

Service revenues
3,564

 
3,534

 
10,615

 
10,062

Total net sales
283,874

 
291,808

 
855,943

 
857,506

Other revenues
179

 
95

 
291

 
267

Total revenues
284,053

 
291,903

 
856,234

 
857,773

Costs and expenses:
 
 
 
 
 
 
 
Cost of goods sold
166,886

 
175,591

 
507,102

 
519,847

Selling, general and administrative expense
80,894

 
80,676

 
241,649

 
233,290

Provision for bad debts
286

 
189

 
789

 
584

Charges and credits
737

 
5,861

 
1,037

 
11,156

Total costs and expenses
248,803

 
262,317

 
750,577

 
764,877

Operating income
$
35,250

 
$
29,586

 
$
105,657

 
$
92,896

Retail gross margin
41.2
%
 
39.8
%
 
40.8
%
 
39.4
%
Selling, general and administrative expense as percent of revenues
28.5
%
 
27.6
%
 
28.2
%
 
27.2
%
Operating margin
12.4
%
 
10.1
%
 
12.3
%
 
10.8
%
Store count:
 
 
 
 
 
 
 
Beginning of period
118

 
116

 
116

 
113

Opened
3

 

 
5

 
3

End of period
121

 
116

 
121

 
116



6



CONN'S, INC. AND SUBSIDIARIES
CONDENSED CREDIT SEGMENT FINANCIAL INFORMATION
(unaudited)
(dollars in thousands)
 
Three Months Ended October 31,
 
Nine Months Ended 
 October 31,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Finance charges and other revenues
$
89,771

 
$
81,269

 
$
260,597

 
$
237,872

Costs and expenses:
 
 
 
 
 
 
 
Selling, general and administrative expense
37,486

 
33,679

 
112,299

 
99,234

Provision for bad debts
47,262

 
56,323

 
141,666

 
161,307

Charges and credits
4,800

 

 
4,800

 

Total costs and expenses
89,548

 
90,002

 
258,765

 
260,541

Operating income (loss)
223

 
(8,733
)
 
1,832

 
(22,669
)
Interest expense
15,098

 
18,095

 
47,484

 
62,142

Loss on extinguishment of debt

 
461

 
1,773

 
2,907

Loss before income taxes
$
(14,875
)
 
$
(27,289
)
 
$
(47,425
)
 
$
(87,718
)
Selling, general and administrative expense as percent of revenues
41.8
%
 
41.4
 %
 
43.1
%
 
41.7
 %
Selling, general and administrative expense as percent of average total customer portfolio balance (annualized)
9.9
%
 
9.1
 %
 
9.9
%
 
8.9
 %
Operating margin
0.2
%
 
(10.7
)%
 
0.7
%
 
(9.5
)%


7



CONN'S, INC. AND SUBSIDIARIES
CUSTOMER RECEIVABLE PORTFOLIO STATISTICS
(unaudited)
 
As of October 31,
 
2018
 
2017
Weighted average credit score of outstanding balances (1)
593

 
589

Average outstanding customer balance
$
2,578

 
$
2,405

Balances 60+ days past due as a percentage of total customer portfolio balance (2)
9.7
%
 
9.9
%
Re-aged balance as a percentage of total customer portfolio balance (2)(3)
25.5
%
 
23.8
%
Account balances re-aged more than six months (in thousands)
$
87,484

 
$
80,516

Allowance for bad debts as a percentage of total customer portfolio balance
13.6
%
 
13.6
%
Percent of total customer portfolio balance represented by no-interest option receivables
21.7
%
 
22.3
%
 
Three Months Ended 
 October 31,
 
Nine Months Ended 
 October 31,
 
2018
 
2017
 
2018
 
2017
Total applications processed(4)
283,274

 
321,373

 
862,324

 
909,287

Weighted average origination credit score of sales financed (1)
610

 
611

 
609

 
609

Percent of total applications approved and utilized
28.5
%
 
29.1
%
 
30.1
%
 
31.1
%
Average down payment
2.4
%
 
2.9
%
 
2.7
%
 
3.2
%
Average income of credit customer at origination
$
45,400

 
$
43,500

 
$
44,200

 
$
42,700

Percent of retail sales paid for by:
 

 
 

 
 

 
 

In-house financing, including down payment received
69.7
%
 
72.0
%
 
70.1
%
 
71.7
%
Third-party financing
15.6
%
 
15.1
%
 
15.7
%
 
15.8
%
Third-party lease-to-own option
8.0
%
 
5.7
%
 
7.3
%
 
5.7
%
 
93.3
%
 
92.8
%
 
93.1
%
 
93.2
%
(1)
Credit scores exclude non-scored accounts.
(2)
Accounts that become delinquent after being re-aged are included in both the delinquency and re-aged amounts.
(3)
First time re-ages related to customers affected by Hurricane Harvey within FEMA-designated disaster areas included in the re-aged balance as of October 31, 2018 and October 31, 2017 were 2.2% and 4.8%, respectively, of the total customer portfolio balance.
(4)
The total applications processed during the three months ended October 31, 2017, we believe, reflect the impact of the rebuilding efforts following Hurricane Harvey.

8



CONN'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
 
October 31,
2018
 
January 31,
2018
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
3,492

 
$
9,286

Restricted cash
70,043

 
86,872

Customer accounts receivable, net of allowances
630,396

 
636,825

Other accounts receivable
63,752

 
71,186

Inventories
227,164

 
211,894

Income taxes recoverable
556

 
32,362

Prepaid expenses and other current assets
15,164

 
31,592

Total current assets
1,010,567

 
1,080,017

Long-term portion of customer accounts receivable, net of allowances
654,320

 
650,608

Property and equipment, net
146,326

 
143,152

Deferred income taxes
23,157

 
21,565

Other assets
6,642

 
5,457

Total assets
$
1,841,012

 
$
1,900,799

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Current maturities of capital lease obligations
$
804

 
$
907

Accounts payable
110,359

 
71,617

Accrued expenses
87,607

 
66,173

Other current liabilities
22,206

 
25,414

Total current liabilities
220,976

 
164,111

Deferred rent
90,410

 
87,003

Long-term debt and capital lease obligations
920,366

 
1,090,105

Other long-term liabilities
22,226

 
24,512

Total liabilities
1,253,978

 
1,365,731

Stockholders' equity
587,034

 
535,068

Total liabilities and stockholders' equity
$
1,841,012

 
$
1,900,799



9



CONN'S, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATIONS
(unaudited)
(dollars in thousands, except per share amounts)

RETAIL SEGMENT OPERATING INCOME, AS ADJUSTED
 
Three Months Ended 
 October 31,
 
Nine Months Ended 
 October 31,
 
2018
 
2017
 
2018
 
2017
Retail segment operating income, as reported
$
35,250

 
$
29,586

 
$
105,657

 
$
92,896

Adjustments:
 
 
 
 
 
 
 
Facility closure costs

 

 

 
1,349

Securities-related regulatory matter and other legal fees

 

 
300

 
34

Employee severance
737

 

 
737

 
1,317

Indirect tax audit reserve

 

 

 
2,595

Write-off of capitalized software costs

 
5,861

 

 
5,861

Retail segment operating income, as adjusted
$
35,987

 
$
35,447

 
$
106,694

 
$
104,052

Retail segment total revenues
$
284,053

 
$
291,903

 
$
856,234

 
$
857,773

Retail segment operating margin:
 
 
 
 
 
 
 
As reported
12.4
%
 
10.1
%
 
12.3
%
 
10.8
%
As adjusted
12.7
%
 
12.1
%
 
12.5
%
 
12.1
%


CREDIT SEGMENT OPERATING INCOME (LOSS), AS ADJUSTED
 
Three Months Ended 
 October 31,
 
Nine Months Ended 
 October 31,
 
2018
 
2017
 
2018
 
2017
Credit segment operating income (loss), as reported
$
223

 
$
(8,733
)
 
$
1,832

 
$
(22,669
)
Adjustments:
 
 
 
 
 
 
 
Legal judgment
4,800

 

 
4,800

 

Credit segment operating income (loss), as adjusted
$
5,023

 
$
(8,733
)
 
$
6,632

 
$
(22,669
)
Credit segment total revenues
$
89,771

 
$
81,269

 
$
260,597

 
$
237,872

Credit segment operating margin:
 
 
 
 
 
 
 
As reported
0.2
%
 
(10.7
)%
 
0.7
%
 
(9.5
)%
As adjusted
5.6
%
 
(10.7
)%
 
2.5
%
 
(9.5
)%


















10




NET INCOME, AS ADJUSTED, AND DILUTED EARNINGS PER SHARE, AS ADJUSTED
 
Three Months Ended October 31,
 
Nine Months Ended October 31,
 
2018
 
2017
 
2018
 
2017
Net income, as reported
$
14,630

 
$
1,569

 
$
44,373

 
$
3,262

Adjustments:
 
 
 
 
 
 
 
Facility closure costs

 

 

 
1,349

Securities-related regulatory matter and other legal fees

 

 
300

 
34

Employee severance
737

 

 
737

 
1,317

Indirect tax audit reserve

 

 

 
2,595

Legal judgment
4,800

 

 
4,800

 

Write-off of capitalized software costs

 
5,861

 

 
5,861

Loss on extinguishment of debt

 
461

 
1,773

 
2,907

Tax impact of adjustments
(1,240
)
 
(2,289
)
 
(1,811
)
 
(5,092
)
Net income, as adjusted
$
18,927

 
$
5,602

 
$
50,172

 
$
12,233

Weighted average common shares outstanding - Diluted
32,321,874

 
31,764,594

 
32,251,952

 
31,457,420

Diluted earnings per share:
 
 
 
 
 
 
 
As reported
$
0.45

 
$
0.05

 
$
1.38

 
$
0.10

As adjusted
$
0.59

 
$
0.18

 
$
1.56

 
$
0.39

Basis for presentation of non-GAAP disclosures:
To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company also provides the following non-GAAP financial measures: retail segment adjusted operating income, retail segment adjusted operating margin, credit segment adjusted operating income (loss), credit segment adjusted operating margin, adjusted net income, and diluted earnings per share, as adjusted. These non-GAAP financial measures are not meant to be considered as a substitute for, or superior to, comparable GAAP measures and should be considered in addition to results presented in accordance with GAAP. They are intended to provide additional insight into our operations and the factors and trends affecting the business. Management believes these non-GAAP financial measures are useful to financial statement readers because (1) they allow for greater transparency with respect to key metrics we use in our financial and operational decision making, and (2) they are used by some of our institutional investors and the analyst community to help them analyze our operating results.

11